Tuesday, August 02, 2005

Total/France endorses Operation Alberta Freedom.

PARIS/CALGARY, Aug 2 (Reuters) - Total SA (TOTF.PA: Quote, Profile, Research) launched a friendly, $1.1 billion bid for Canada's Deer Creek Energy Ltd. on Tuesday to gain control of what is seen as one of the country's last big available oil sands opportunities.

The French oil major's cash bid of C$25 ($20.50) a share is 39 percent higher than Deer Creek's (DCE.TO: Quote, Profile, Research) Friday closing price, a rich premium one analyst said is necessary to win over investors in the developer of the Joslyn oil sands project in northeastern Alberta.

"Total definitely paid up, but they had to pay up if they wanted to get in," said Kyle Preston, analyst with Salman Partners in Calgary.

"Deer Creek had one of the last remaining oil sands leases that someone could potentially come in and buy. For the past several months, Deer Creek knew they were in the driver's seat and could wait for the right price or the right partner."

The acquisition gives Total, the world's No. 4 oil firm by market value, access to the multistage Joslyn project, which has bitumen, or extra-heavy crude, reserves pegged at more than 2 billion recoverable barrels of bitumen.

"It's a relatively small deal for Total ... but it does provide some foundation for production growth for the next decade, and that should reassure investors," a London-based analyst said.

The deal is subject to regulatory approvals and acceptance by holders of at least two-thirds of Deer Creek's stock.

Surging crude prices and scarce secure supplies have prompted a boom in spending to develop Alberta's oil sands, which rival Saudi Arabia's conventional reserves in size but are far more expensive to develop.

The energy industry estimates oil sands output will nearly triple to 2.7 million barrels a day by 2015, pushing overall Canadian oil production to 3.9 million barrels a day.

Oil sands have also lured Chinese companies, and some analysts figured Deer Creek would be a target for them, too.

Deer Creek -- which has an 84 percent stake in the Joslyn lease -- had been searching initially for a partner with know-how in upgrading tar-like crude from the oil sands into refinery-ready oil, as well as refining and marketing.

"As you talk to people about their ideas, sometimes other ideas come forward. As a result of the characteristics of the proposal that came through from Total, it was a value-creation level that the board felt merited consideration," Chief Executive Glen Schmidt told Reuters.

Besides the bid, Total brings expertise in developing bitumen, or extra-heavy crude, with steam-assisted drilling technology as well as upgrading in Venezuela, Schmidt said.

Total once had conventional oil and gas operations in Canada, but sold them in the early 1990s. It returned a few years later to scout out oil sands opportunities and secured a 50 percent stake in the Surmont project, 125 km (78 miles) south of Joslyn.

Schmidt said Total was not the only company interested in the Joslyn project.

"Deer Creek had discussions with parties that had the capabilities we were looking for, and through that the Total process developed," he said.

Total said it aimed to submit an application to Alberta regulators in early 2006 for the first phases of the mine and related extraction facilities. Production is scheduled to begin in 2010 and hit a plateau of 200,000 barrels a day.